The back-to-school season is upon us, as kids nationwide gear up for math, science, art, social studies, etc. Noticeably absent from modern education, however, are classes on financial responsibility.
In the United States:
- The average household carries more than $16,000 in credit card debt.
- According to a 2018 report, 61% of Americans don’t have enough savings to cover a $1,000 emergency.
- Seven million U.S. drivers are 90-plus days behind on their car loan payments.
Schools really should be teaching kids how to handle money responsibly, but they aren’t. As a parent, it’s up to you to prepare your children for the many financial hurdles they’ll experience throughout life.
Below are five tips to get you started.
1. Give Them an Allowance
It’s hard to teach kids about finances if they don’t have money. For this reason, many parents give their kids an allowance.
However, “free” money doesn’t have much value. It helps to tie each installment to some type of task — be it chores, good grades, or some other positive behavior you want to reinforce.
Whether you give an allowance weekly or monthly — the concept is the same. Your kids can use that money however they want. Once it’s gone, they have to wait until the next cycle.
2. Set a Savings Target
The goal of making money is so that we can afford what we want. Yet, it’s way too easy to spend cash on impulse purchases — rather than saving for something epic.
This is why you should encourage kids to squirrel away at least 10% of their allowance.
Better still, help them pick something they can’t afford now — but definitely want to buy later. It can be anything, from video games to fashion to a new guitar. The point is, saving money becomes much easier if you have a set target in mind.
As your kids save, have them place their cash in a glass jar so they can see their money grow over time. Putting it in an opaque piggy bank simply doesn’t provide the same visual motivation.
3. Hold on to What You Have
Gadgets break down, clothes start to wear out, and instruments get scratched.
Most of the items we buy are repairable. Fixing them often costs significantly less than purchasing replacements.
Admittedly, no kid wants to be stuck with last year’s model of the hot new smartphone. Though encouraging your children to extend the useful lifetimes of everything they buy can save them a fortune over the long term.
You’ll likely face some resistance when asking your kids to hold on to their gadgets a little longer. It’s definitely worth it — financially and environmentally.
If you have trouble getting through to them, see the next tip.
4. Teach Them How to ‘Give’
Most people live in bubbles, surrounded by those of comparable means and lifestyles. Against this backdrop, it’s easy to overlook the suffering in the world — or how good we actually have it.
This is especially true among children as they start navigating the complex world of peer pressure.
Donating money, volunteering at soup kitchens, or engaging in other charitable acts can provide your kids with much-needed perspective. They’ll still probably want that hot new video game or latest iPhone. Hopefully, they’ll also see the bigger picture and realize that these fads aren’t that important.
5. Help Them Start a Business
Launching a venture is a great way to tie all of the above together. It doesn’t matter if they gravitate toward babysitting, lemonade stands, or mowing lawns — the act of managing a business will help teach your children how to:
- Find customers
- Manage costs
- Meet deliverables
- Grow demand
- Increase profits
Even if they fail miserably, life experience is often more valuable than the best parental lectures.
Moreover, if you jumpstart their business with a low-interest loan (from your wallet), you can teach your kids the awesome power of compound interest along the way.
When to Start Teaching Your Kids About Financial Responsibility
Obviously, all of the tips above should be adjusted so that you’re only sharing age-appropriate lessons with your kids. Even the most entrepreneurial 2-year-olds aren’t ready to manage a lemonade stand — but don’t wait too long.
According to recent research, most financial habits are locked in by age 7. As such, it’s never too early to start teaching your kids about the true value of money.